OPINION: New research shows that house prices could fall more than 30 per cent if the Reserve bank of Australia meets the market’s interest rate expectations.
, almost all banks have revised their own housing projections in line with our lower bound, which is arguably the most bearish bank forecasters have ever been.
Davies has taken this one step further by flexing the ST model to emulate marketing pricing for the direction of the RBA’s cash rate. He assumes the cash rate climbs to a peak of 4.25 per cent in 2023 following which it falls to 3.75 per cent in 2025.Adopting this profile for interest rates generates a materially more severe peak-to-trough draw-down for Aussie house prices of about 40 per cent.
Given the dramatic rise in the interest rate sensitivity and debt levels of households, there is a case for the central bank to carefully evaluate shifts in behaviour in response to tighter policy.At this juncture, the RBA does not seem concerned about the consequences of policy overreach, and — based on— it wants to quickly lift its cash rate back to 2.5 per cent. It presumably believes it can do this without materially adversely impacting the economy.
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